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Preparing for the super changes

Tighter superannuation rules will apply from 1 July 2017 as part of the super reforms announced in last year’s Federal Budget.

The new rules include the introduction of a $1.6 million super balance cap for after-tax contributions; a maximum of up to $25,000 for concessional contributions; and the removal of the current “bring-forward” rule allowing $540,000 of contributions in one year.

Although the new rules will come into effect from 1 July 2017, individuals can take advantage of the current rules to top up their nest egg.

Individuals under 65 who wish to make a large contribution, in particular, those with inheritances or who have recently sold a property or other large asset can make the most of this last-chance opportunity to contribute up to $540,000 until 30 June.

From 1 July 2017, individuals will only be able to bring forward up to three year’s worth of after-tax contributions, i.e $300,000 over three years.

The bring forward rule can not be accessed by those aged between 65 and 74 who meet the work test, however, they can still make annual after-tax contributions.

Those with balances in excess of the $1.6 million cap will need to review their super before 30 June to continue to make after-tax contributions. Furthermore, individuals with a balance close to $1.6 million will only be able to bring forward the annual cap amount for the number of years that would take your balance to $1.6 million.

Posted on 8 February '17 by , under Super.

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Self-managed super funds (SMSF) aren’t just about financial investment

Individuals may be looking to opt for an SMSF because these provide entire control over where the money is invested. While this sounds enticing, the downside is that they involve a lot more time and effort as all investment is managed by the members/trustees.

Firstly, SMSFs require a lot of on-going investment of time:

  • Aside from the initial set-up, members need to continually research potential investments.
  • It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF.
  • The accounting, record keeping and arranging of audits throughout the year and every year also need to be conducted up to par.

Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This adds up to more than 100 hours per year and demonstrates that compared to other superannuation methods, is a lot more time occupying.

Secondly, there are set-up and maintenance costs of SMSFs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fee, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses.

Thirdly, investing in SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market so that they can build and manage a diversified portfolio. Further, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if one is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super and other relevant regulations requires a basic level of understanding at the very least. Finally, insurance for fund members also needs to be organised which can be difficult without additional knowledge.
Although SMSFs have the advantage of autonomy when it comes to investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and on top of this, are required to have some financial and legal knowledge to successfully manage the fund.

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